Trade boom wave wipe-out warning

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AFTER surfing the housing and consumption boom for years, the
economy is about to catch a new wave generated by the global
commodities boom, but analysts warn it could be a dumper.

The Australian Bureau of Agricultural and Resource Economics is
predicting commodity export earnings will hit a record $117 billion
this financial year  19 per cent more than 2004-05.

Trade Minister Mark Vaile said the report confirmed that recent
heavy mining investment would soon bear fruit, allowing Australia
to capitalise on the best terms of trade for three decades.

"These figures reflect rising prices for key commodities such as
coal, crude oil and LNG where significant investment by the private
sector over the past four or five years is beginning to bear
fruit," he said. "Expansion in these key industries will now allow
Australia to capitalise on the continued demand for resources from
countries such as China, which is driving world growth and is
expected to do so for some time yet."

But Access Economics director Chris Richardson warns that the
nation needs to "dig more stuff out of the ground and ship it fast"
because high commodity prices are unlikely to last, with strong
global mining investment set to dramatically increase the volume of
minerals hitting markets.

"If (a rise in export volumes) doesn't happen, we are basically
screwed," Mr Richardson said. "We can reliably predict that
domestic demand will go nowhere for a while. What it means is that
our overall economic health will increasingly depend on the health
of our exports over the next couple of years, and probably not on
the health of export prices, because they can't last."

ANZ chief economist Saul Eslake said gains in the terms of trade
since 1999 were worth the equivalent of $2100 a year for each man,
woman and child, but warned the economy was "near the point in the
cycle where the seeds of previous recessions have been sown".

The ABARE figures showed the expected earnings surge would be
mainly due to high prices. It predicted a 28 per cent rise in the
value of mine production to $83.75 billion in 2005-06, compared
with a volume rise of just 5.2 per cent.

BHP Billiton chairman Don Argus also warned that commodity
prices would ease from their highs as demand slowed and new
supplies became available. But he predicted prices would remain
high by historical standards.

He said while economic growth had slowed from the exceptionally
high levels of last year, the buoyancy of emerging economies in
Asia, South America, Africa and Russia had offset this effect.

ABARE forecasts total coal exports at $24.6 billion  worth
double the value of the next most important export, iron ore.

Crude oil exports are expected to reach $9 billion as Australian
exports climb to 18 million litres, while LNG exports are expected
to rise 49 per cent to $4.8 billion.

But the news is not so good for farmers. The high demand for oil
will push up transport, chemicals and fertiliser prices and they
will eat into agricultural profits.

Although the total value of farm exports is tipped to fall only
2 per cent to $27.2 billion, the net value of farm production
 effectively farm profits  is expected to drop 33 per
cent to just $4.4 billion. With